Returns of the Telecom Industry - Research Paper Example

Telecom sector report al affiliation) Telecom sector report Executive summary The telecom industry is a complex business that is associated with various segments, which have registered strong growth and improvement in the past ten years. Recent history has indicated some significant changes with rapid flow of technologies that have supported broader coverage, faster speed and expanded markets as well as extensive mergers. The industry has are prepared for the various challenges and changes that are expected in the coming ten years. Some of the challenges that are facing the telecom industry in the United States of America include persistent security challenges, robust growth in connectivity demand and continued innovation in services and devices that are utilized in the communication industry. Continued innovation and emergence of new technology has been of essence to the industry as the industry approaches maximum penetration into the United States market. It will be a challenge for the telecom industry to repeat the high performance that were registered in the past ten years as mergers yield higher concentration and consolidation of the players. The management of the telecom industry has hopes that the new technology and innovation will continue to create new opportunities as well as growth of the industry. The industry has recorded $ 750 billion of revenue across all segments. The revenue is expected to grow by +3.9% every year to reach almost 1.2 trillion dollars in total revenue (Huemann, 2014). As the number of the telecom segments continues to grow and penetrate into the market, growth over the next 10 years is more likely to slow as to nearly half of the growth that was registered in the last ten years even though the revenue is expected to increase by over $ 40 billion. Introduction The United States telecommunication industry encompasses advanced technology based services that includes the internet, wireless communication, satellites and fiber optics in addition to the traditional areas of local and long distance telephone services. The sector is also linked with entertainment of various types. Cable TV systems for example Comcast are offering high speed internet access and local telephone services. This paper will provide returns of the telecom industry; provide financial analysis, present tables and graphs showing the valuation multipliers, provide a description of telecom sector and discuss the social and economic factors that impact on the performance of the industry. Innovation, ingenuity, reasonable approach to spending and cost control will help propel the industry to the next level as it goes through major evolutionary changes. New cellular, satellite, cable, wireless technologies and VOIP promise a continuous rapid advancement in the telecom sector while at the same time posing a major threat to the traditional landlines. The total earnings of the industry have improved by over 5.3%, with 50% coming ahead of the top-line estimates and 66.7 % beatings earnings estimates (Gar & Gupta, 2013). The total earning of the sector is expected to be up by 3.0% on 4.0% of the higher revenues that will be generated. Returns of the sector The table represents the returns on the telecom sector, industries within the sector and S& P500 MONTH END As of 02/28/2015 QUARTER END As of 12/31/2014 1 Month 3.02% -4.79% QTD 5.80% -0.38% YTD 5.80% -3.23% 1 Year 2.63% -3.23% 3 Year 13.16% 11.24% 5 Year 10.62% 8.03% 10 Year N/A N/A Inception 07/16/2008 5.82% 5.05% The graph below represents the revenue as a percentage The company should continue opening up new market as well as enhance innovation with an intention of improving the results of the company. The company should be able to outperform competitors and utilize new technology in the services provided. Provide the financial analysis of the sector The United States telecommunication industry has registered growth in the previous years and the momentum is likely to increase in the coming years. The economic dynamics is expected to shift in the direction of the industry based on the significance of the sector as an infrastructure product. The unprecedented growth and rise in high internet traffic, in particular of video and wireless has transformed the industry into a more inventive, evolving and keenly contested space. Any new network standard in the market has a mandate of ensuring faster data connectivity, rich multimedia connectivity as well as quick video streaming with high resolution. The telecommunication industry has continued to remain strong with regard to earnings. Over 98.5% of the company has reported better results with considerable growth (Coen, 2014). Both beat ratio and earning beat ratio were fairly high at 65.6% and 64.1%/. Total revenue has also indicated an increase of over 12.1% on a 6.0 % growth in revenues. The result is high as compared to the result which was recorded last year which recorded an increase of 4.6% on 3.2 growths in revenues. The consensus earning recorded indicated improved trends. Earnings growth in the sector is expected to rise by over 2.4 % in the 3rd quarter and a stronger 6.9% in the 4th quarter. The sector is expected to register 12.5% rise by the end of 2015. Provide table and graphs showing valuation multipliers. Benchmark your data and graphs against s& p500 The table below represents the valuation multiplier for the sector As of 1 Month QTD YTD 1 Year 3 Year 5 Year 10 Year Since Inception 07/16/2008 Month End NAV 02/28/2015 3.02% 5.80% 5.80% 2.63% 13.16% 10.62% N/A 5.82% Market Value 02/28/2015 3.33% 6.24% 6.24% 2.50% 13.05% 10.57% N/A 5.81% S&P Developed Ex-U.S. BMI Telecommunication Services Sector Index 02/28/2015 3.06% 5.74% 5.74% 2.58% 13.67% 10.82% N/A 5.98% Graphical representation of the valuation multiplier Provide the description about the sector and industries within the sector The telecommunication industry comprises of systems, devices and technologies that make distance communication possible. The current means of communication have been defined by satellite communication, cutting edge optical fibers and wireless communication as well as the internet. Wireless communication as well as fixed point communication has increased as a result of competition among the service providers and attractive pricing. The top ten largest telecom companies within the industry includes the china telecom corporation limited, the ACT conferencing inc, ADTRAN inc, advanced micro devices inc, Akamai technologies inc, quanta services inc, Samsung electronics Co Ltd, T-mobile US inc and the Opterna AM inc. Economic and social factors that impact on the performance of the sector Economic factors are inevitably impacting on the global telecommunication industry. Continuous strains the credit market presents a huge impact on the industrial investment and the decline in the changing the acceptance and adoption of new technology. During such difficult times the companies will need to implement a shared and open innovation models in order to continue staying afloat. The telecommunication sector will be affected by economic crisis in various ways. The lack of credit in the global market will impact negatively on the company’s investments. Additionally, consumption will decline as people will continue to focus on needs and move away from wants. The approach will decline the uptake of the innovative services generated by the economy. The move has some of the industries in the market to trim down their operations through job cuts and reducing the number of employees that can be supported by the industries. Optimization of organizational processes and resources as well as enhancing innovation in the industry is the key issues raised in the economic environment. This means that being able to disrupt business models while at the same time designing lower costs are considered effective ways in which consumers can be attracted into the market (Gar & Gupta, 2013). Disruptive businesses entail combining various forms of advertisement and mobile content to create cost products and services that are directed to the consumers. Encouragingly for the telecom sector, many super-national organizations and the national government have come to view the industry as a necessary way to deal with the economic crisis that has been experienced in the recent past. The European Union for example has put plans in order to invest over one billion for the creation of high speed internet for its people. The other major economic and social factors that affect the industry are market competition and modern technology. Optic fiber is one of the modern factors that tend to affect the sector. The product is currently utilized in the transportation of data. Optic fibers are easier to install and maintain despite carrying high volumes of data. The utilization of the communication satellite has impacted positively towards the industry. Human resource is a social factor that affects the telecommunication industry around the world. The sector has created immense employment opportunities with most of the employees engaged in large establishment around the world. More than half of the employees are engaged in administrative occupation with the group taking part in other activities such as repair, maintenance and installation. The increase in the utilization of data around the world has served as an opportunity for growth in the telecommunication company. Consumers are starting to focus on needs rather than wants by deriving much values from the application and features of their devices. Continued innovation has continued to enhance broadband with operators rolling the fourth generation of 4G network. A continuous stream of services and new devices that are capable of exploiting the bandwidth will appear online, including banking, automotive telematics, healthcare, and mobile payment. Among the challenges that the industry will face includes capital requirements needed to upgrade and enhance the network. The increase in the utilization of data will out space the technological advancement leading to the shortage in spectrum in the coming years (Gar & Gupta, 2013). Analyze five sourced article and reports from the web addressing the outlook of the sector Opportunity for growth in the telecom sector As it has been witnessed in the past few years, the telecommunication industry has continued to be vibrant, growing and expanding rapidly across a broad swath of technology, products and service companies. There are however plenty of emerging and new opportunities which will continue to offer robust growth across all the telecommunication sectors. A promising development in the current market is the movement of markets towards enterprises and consumer mainstreams. Many businesses are able to generate a lot of capital from the internet services that are a product produced by the telecommunication industry in areas such as increased customer base, cost reduction, productivity and efficiency (Coen, 2014). Growth in the industry is expected to rise as the consumers continue to get obsessed with their devices. The other trends that will be of benefit to the consumers is the growth in video and audio streaming among the Smartphone users and since more people utilize more than a gigabyte of data in a month. The number of consumers utilizing the telecom product has continued to rise. Regulations, market structures and performance in the telecommunication sector Over the past twenty years, the regulatory and institutional framework of the telecommunication industry has continued to change radically. In most developed countries for example, public telecommunication operators have partially or fully privatized and regulation concerning provision of services to the users, institutional and regulatory reforms as well as pricing mechanisms has been overhauled (Palonen et al, 2014). The regulatory and institutional reforms was generally propelled by rapid evolution of the structure of demand for the telecommunication services as well as telecommunication technology which has eliminate all natural monopoly conditions making it efficient and possible for a multiplicity of operators who are tasked with the opportunities of supplying this services to the consumers and the businesses. The regulatory changes and technical progress are generally presumed to have resulted to numerous improvements in range, amount and the qualities and prices of the services and products offered by the industry in various countries in the world. In telecom, wireless is still the key The united states telecommunication industry is still evolving around 5 factors that include increasing traction of wireless networks the consequent popularity spectrum as well as telecom industry, the consolidation within the industry, the projection of aggressive high speed fiber based network expansion, innovative products are expected in areas such as cloud based technology, virtualization, areas of m-commerce and high speed metro Ethernet as well as the ample cope for the expansion of the rural American households as per the federal communication commission (Coen, 2014). The telecom operators around the world generated approximately two trillion dollars in the revenue as per the result registered in 2013 that highlighted slight improvement as compared to the previous revenue that was recorded in 2012 indicated a rise of 1.9 trillion dollars. The global expenditure of the company rose by five percent in the last two years to 5.1 trillion of United States dollars. The spending rate of the United States telecom industry was able to surpass the global expenditure by over 4.5%. It was estimated that the US will spend 36.3 billion dollars on equipments and network infrastructure signifying an eight percent improvement over the year. We expect the wireless network to provide a major boost to the industry despite the massive growth in the fiber to the home networks. Technical shift in the telecom vendor market The telecom market that deals with the development of infrastructure is witnessing a technical change around the word. The telecom sector has focused majorly on developing advanced hardware that will be effective in attaining scalability, reliability and enhanced speed. Recent development however is suggesting shift of focus from hardware growth to a software centric model. The shift is as a result of growth in cloud based virtual networking (McCormick, 2015). The growth of network function visualization and software defined networking encouraged newly emerging digital companies to continuously invest in the communication infrastructure market. Software defined networking provided the consumers with higher reliability, increased bandwidth utilization and reduced capital spending. Network function virtualization was designed to deliver as well as consolidate the networking components that are of essential in supporting virtualized infrastructure including storage, virtual servers and other networks. Product innovation in the telecom sector Severe spectrum crunch together with gradual smart phones utilization by many consumers are forcing the operators to identify other option that they may utilize to raise revenues. Further, increasing demand for superior product has been stepping stone for the telecommunication industry in a market environment that is so competitive (Ramirez, 2014). Wi-Fi market that is cloud managed has become a major growth motivator for the telecom operators as increasing numbers of mid-sized and large business enterprises are utilizing this technology. A robust and strong wireless network is essential for the company to be able to maintain a connection with other remote sites. Wi-Fi networks that is cloud managed has become indispensable for various companies around the world as it offers many advantages like linear scalability, smaller physical footprint and central manageability. The other innovation that has been associated with the sector is the machine to machine wireless communication that has been of essence in driving the mobile data revenues. The number of machine to machine deployment is expected to rise by 300 million. Provide a porters five forces model The five models include threats to the new entrants, power of supply, competitive rivalry, availability of substitutes and power of buyers. Concerning the threats to the new entrance, it has been found out that the biggest barrier when entering the capital intensive telecommunication industry is the access to finance (Ramirez, 2014). Typical contenders often require a lot of cash in order to cover high fixed costs. The pace of entrance however declines when the financing opportunities are less readily available. Telecom license ownership often presents a huge barrier to the telecommunication entry. It is of essence to understand that management experience and solid operating skills is fairly scarce and often make entry into the market a little challenging. Another factor is power of supply. At the first glance, it may appear like telecom equipment suppliers have better power of bargaining as compared to the telecom operators. Indeed, without fiber optic cables, high tech brand switching equipments, billing software and mobile handsets, telecom operators will not be able accomplish the job of transmitting data and voice from one place to the other. The limited pool of talented engineers and managers especially those that are well versed with the utilization of the current technologies, place the companies at a weak point in terms of salaries and hiring. The other factor is power of buyers. With rise in choice of services and telecom products, there is increasing bargaining power of buyers. Data services as well as telephone services do not vary much regardless of the business firm that is selling them. Basic services are often treated as commodities for the most part. The power of the buyers tends to vary depending on the market segments. Concerning availability of the substitutes, services and products from nontraditional telecom sector pose various substitution threats (Shaoul, 2012). Satellite operators and cable TV currently compete for buyers. The internet is worrying aspect to the telecom industry as a result of the cheap cut rate voice that it offers to its many customers. The last factor is competitive rivalry. The industry has registered increased competition that tends to emerge from the new entrants into the markets. The increased competition has resulted to reduced prices towards the services that are offered by the company hence impacting negatively to the total revenue that is acquired. The porter five force model Sector recommendation The sector should maximize on the emerging opportunities to ensure improvement in the market. With increase in new technology such as the Smartphone technology, more consumers are utilizing data and the sector should be in a position to meet the needs of the consumers. In addition, the sector should be able to compete effectively in the market against the new entrants by ensuring new markets are opened and enhance promotion of innovative technology that will drive the sector to the next level. The sector should increase the utilization of the satellite technology in order to increase coverage around the world. Satellites have continued to play a critical role towards provision of digital television, radio, mobile communication as well as other services. In the last twenty years, over a million subscribers have been added globally. The sector should be prepared to serve the increasing number of consumers from around the world (Data mining approach for subscription-fraud detection in telecommunication sector, 2014). References Coen, D. (2014). Managing the Political Life Cycle of Regulation in the UK and German Telecommunication Sectors. 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Private sector influence in the International Telecommunication Union. INFO, 9(4), 70-80. doi:10.1108/14636690710762147 Ramirez, M. (2014). Redefining Firm Competencies, Innovation and Labour Mobility: A Case Study in Telecommunication Services. Industry & Innovation, 14(3), 325-347. doi:10.1080/13662710701369288 Shaoul, J. (2012). Critical financial analysis and accounting for stakeholders. Critical Perspectives on Accounting, 9(2), 235-249. Read More